Standards of Value

Value is not a singular, universal term when it comes to determining the value of a business. There are at least four common standards of ‘value’ you will hear referenced:

FAIR VALUE (SPECIAL VALUE): The price at which a property will change hands between a willing buyer and a willing seller considering the specific advantages or disadvantages each party will realize (aka synergistic buyer).

INVESTMENT VALUE (GOING CONCERN VALUE): The price at which a property will change hands between a willing buyer and a willing seller considering the investment objectives of the identified buyer (aka financial buyer).

LIQUIDATION VALUE: The price at which a property will change hands between a willing buyer and a compelled seller when the property cannot be exposed to the open market for a sufficient period of time (aka orderly or forced sale).

FAIR MARKET VALUE: The price at which a property will change hands between a willing buyer and a willing seller when both parties have reasonable knowledge of the facts and neither is compelled to act.

Due to its objectivity, and excluding bankruptcy scenarios, Fair Market Value (FMV) is commonly viewed as the most relevant standard of value when evaluating a business for acquisition purposes, although other standards of value may be included in the overall analysis.

Additional questions? Contact us to speak with an experienced business intermediary.

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